Jens Podewski, CEO and co-founder at FinXP
Opportunity and risk go hand in hand, and nowhere is this clearer than in high-risk industries. Sectors like iGaming, cryptocurrency, and alternative financial services are booming, fueled by changing consumer habits and rapid digital innovation. Yet, despite their potential, accessing financial services remains an uphill battle for these types of businesses. Traditional banks, bound by rigid regulations and less agile risk models, often struggle to accommodate them – creating a major gap in the market.
This is where fintechs come into play. With their ability to assess risk dynamically and leverage technology to create tailored financial solutions, fintech companies are uniquely positioned to support high-risk businesses in ways that traditional institutions can’t. As these industries evolve, fintechs are stepping up to fill the gap with innovative banking solutions that cater to their specific needs. The question now is not whether fintechs can support high-risk industries, but rather how those willing to do so will shape the financial landscape in the years ahead.
Booming and busting industries
The global digital economy is expanding rapidly, and within it, high-risk industries are leading the charge. By 2024, the global iGaming market was expected to reach $97 billion, driven by growing demand for online entertainment and the continued legalisation of online betting across various jurisdictions. Meanwhile, the cryptocurrency sector continues to attract significant investment, with new applications and use cases emerging despite ongoing regulatory scrutiny.
E-commerce sectors dealing with alternative wellness products, digital assets, and other non-traditional services are also experiencing increased demand. However, not all high-risk industries are on an upward trajectory. Some are facing regulatory crackdowns that could threaten their growth. Consumer behaviour is the primary force behind market evolution – rising demand for digital-first, innovative financial solutions compels businesses to continuously adapt in order to remain competitive.
Traditional banks continue to shy away from risk
Despite the growth potential of these industries, traditional banks remain hesitant to engage. Their risk-averse nature is driven by several key factors. Banks often choose not to onboard high-risk businesses due to commercial considerations, including concerns over fraud, reputational risk, and potential regulatory scrutiny. Many banks operate on legacy infrastructure that wasn’t designed to accommodate the unique needs of new and innovative sectors, making it challenging to assess and support them effectively.
Many banks are also wary of the reputational risks tied to volatile industries, often fearing that such associations could undermine their credibility and compliance track record. As a result, many high-risk businesses are left underserved, struggling to find partners willing to support their growth.
Innovating for inclusion
This is where Fintechs add value. Fintech companies complement traditional banks by bringing agility and technology-driven risk assessment to the needs of high-risk businesses. Advanced risk assessment models powered by AI and big data analytics are transforming how financial institutions evaluate businesses, enabling real-time analysis beyond traditional methods that rely solely on historical creditworthiness or outdated industry classifications. Both banks and fintechs are leveraging these technologies to enhance compliance and risk management capabilities.
Fintechs are stepping up with tailored banking solutions for industries often overlooked by traditional banks, from crypto-friendly accounts to alternative payment processing. RegTech innovations are streamlining AML and KYC processes, making compliance faster and less of a bottleneck. Moreover, by integrating human insight with advanced algorithms, fintechs address the nuanced challenges that automated systems often overlook. The industry is already seeing major shifts – neobanks built for crypto firms, and payment providers mastering iGaming transactions – are just a glimpse of how fintech is reshaping financial services for high-risk businesses.
What lies ahead?
The future of high-risk businesses in financial services will likely be shaped by a combination of innovation and regulatory evolution. As fintechs continue to demonstrate their ability to manage risk effectively, we may see a shift in how traditional institutions approach these industries.
Collaboration between fintechs and legacy institutions could open doors to greater financial inclusivity, breaking down barriers that have long kept high-risk businesses on the sidelines. With innovation driving change, will fintechs become the architects of a new financial era where risk isn’t a dealbreaker, but an opportunity?
